ATO minimum residual values: what you'll owe at lease end

At the end of a novated lease, you must pay a residual value (balloon payment) to take ownership of the vehicle. The ATO sets minimum residual percentages to prevent leases being treated as disguised purchase loans.

For a 12-month lease, the minimum residual is 65.63% of the original value. For 24 months: 56.25%. For 36 months: 46.88%. For 48 months: 37.50%. For 60 months: 28.13%.

The residual must be paid from after-tax (post-tax) income. You cannot use pre-tax salary sacrifice contributions to reduce the residual below the ATO minimum during the lease term.

At lease end, you have several options: pay the residual to own the car outright, refinance the residual into a new lease, trade in the vehicle (using trade-in value to cover the residual), or sell the car privately and pay out the residual from sale proceeds.

The residual amount attracts an additional 10% GST when you purchase the vehicle from the lease company at lease end.

Many employees are surprised by the residual at lease end. On a $65,000 vehicle with a 36-month lease, expect a balloon of approximately $30,472 plus $3,047 GST — nearly $33,500 from after-tax income. Planning for this from day one avoids financial stress when the lease matures.